Estimate stock option value in an offer.
An option is worth the difference between the eventual share price and the strike price, not the share price itself — and that difference has to survive dilution from future funding rounds, which commonly removes 15-30 percent before an exit. Spreading the gross value across the vesting period gives an annual figure comparable with salary, and the exercise cost is shown because it is real cash you must find to realise any of it.
Option spread after dilution
Diluted price = expected price x (1 - dilution); spread per share = max(0, diluted price - strike); gross value = spread x options; annual value = gross / vesting years
Highly simplified illustration. Option value depends on grant terms, vesting cliffs, exercise windows, liquidation preferences and tax treatment that vary enormously. This is not financial or tax advice.
Because each funding round issues new shares, reducing your percentage of the company. A grant that looks like 0.5 percent at the seed stage is often closer to 0.3 percent by exit, and the value falls proportionately.
The options are worthless — underwater — and there is no reason to exercise. This is the normal outcome for a majority of startup grants, which is why option value should be discounted heavily rather than counted as salary.
At a substantial discount. They are illiquid, contingent on an exit that may never come, and may require cash and generate a tax charge on exercise. Treating the annual vesting figure as certain income is the commonest mistake.